Oil below $90 1st time this year; drivers see some relief at the pump

Benchmark oil for April delivery fell 89 cents to $89.79 a barrel in midday trading on the New York Mercantile Exchange. Oil slid $1.37 on Friday to $90.68 a barrel.

The Associated Press

3/4/2013

NEW YORK — Oil dropped below $90 a barrel for the first time this year Monday, and pump prices dropped 3 cents over the weekend as driver caught a break after two months of steep increases.

Benchmark oil for April delivery fell 89 cents to $89.79 a barrel in midday trading on the New York Mercantile Exchange. Oil slid $1.37 on Friday to $90.68 a barrel.

The price of oil declined as markets continued to digest the introduction in the U.S. of automatic government spending cuts, which could hurt the world's leading economy.

Spending cuts of roughly $85 billion automatically kicked in on Friday after President Barack Obama and Congress failed to meet a deadline for striking a deal to avert or soften the reductions. Negotiations on Sunday ended in a bitter impasse, and what happens next is anyone's guess.

The International Monetary Fund has predicted that the spending cuts could reduce U.S. growth by some 0.5 percentage point in 2013.

Traders also said that a report showing weakness in China's service sector contributed to the drop in oil.

While a month ago oil was close to exceeding $100 a barrel, analysts said prices could continue to slide.

A report from JBC Energy in Vienna noted that refineries are undergoing a higher than normal rate of maintenance. That reduces demand for oil, hurting the price. And Jim Ritterbusch of Ritterbusch and Associates in Illinois says recent strength in the dollar is a major reason that oil is down 7 percent a little more than 2 weeks.

The increase in the dollar makes crude more expensive and a less attractive investment for traders using other currencies. While the euro was worth over $1.36 on Feb. 4, on Monday it was trading just under $1.30.

Brent crude, used to price many kinds of oil imported by U.S. refineries, fell 35 cents to $110.05 a barrel on the ICE Futures exchange in London.

In other energy futures trading on the Nymex:

— Wholesale gasoline fell 3 cents to $3.10 a gallon.

— Heating oil slipped 1 cent to $2.92 a gallon.

— Natural gas gained 8 cents to $3.53 per 1,000 cubic feet.

Pamela Sampson in Bangkok and Pablo Gorondi in Budapest contributed to this report.